Why Solar Is Leading New US Power Capacity: DESRI CEO David Zwillinger

David Zwillinger: 54% of all new generating capacity last year was solar. People sometimes used to talk about solar being 100% on the grid. That doesn't make any sense. AI's here, electrification's here, domestic manufacturing is here. All of those are driving the demand for power.

David Young: Joining me today is David Zwillinger, the CEO of DESRI. David, welcome.

David Zwillinger: David, thanks for having me.

David Young: So David, before we get into some of the questions I've got for you, tell us a little bit more about DESRI, its role in the energy markets today.

David Zwillinger: Sure. DESRI is an independent power producer. We've been building power plants for the last 15 years. We started within as a subsidiary of D.E. Shaw. Today we've got close to 10 GW of solar storage and wind. We are developing those projects. We're in 24 different states, and we're building power plants and infrastructure throughout the US.

David Young: I'm watching a video of DESRI earlier today. You guys are positioning for the next era of energy, and there were three components to this video. Scale, speed, and discipline, all playing critical roles, I believe, in setting you guys up for success moving forward.

David Zwillinger: Every counterparty you deal with today is struggling with how do we get power online as fast as possible? How do we get capacity online as fast as possible? And how do we make data centers and the other things that are driving energy demand on as quickly as possible? And our goal is to solve those as quickly as we can.

David Young: So you've alluded there to demand and supply. After years of relatively flat electricity consumption here in the US, power demand is growing again, driven in large part, I think, mainly by data centers, AI, advanced manufacturing, electrification. Why is so much of this demand now being met by solar, and is it actually being met by solar?

David Zwillinger: First off, power demand was flat for most of my career. It's only in the last year or two where you're seeing power demand for the reasons you just said. And solar is a big driver of what's producing the power. So to give you just some stats, 54% of all new generating capacity last year was solar.

79% was all renewables, and over the last five years, solar has been the biggest producer of new generation. Now, why is that? One, solar is cheap. It's low cost. Two, it is permittable. You can actually get the site developed and built. Third, the biggest challenge in building infrastructure and power infrastructure is the interconnect queue, where you gotta go and get onto the grid.

Let me just give you a data point. In 2022, in the Midwest, known as MISO, 97% of the interconnect requests were solar. Those projects are the one that's gonna come online in '28, '29, and 2030. So when you think about what's happening today, those seeds were planted five years ago. And when you think that's coming on now and tomorrow, it is things that have been worked on over a period of time.

When we add a solar power plant, or in that matter, wind or storage or gas, it's a five- to 10-year process. So low cost, cheap, clean, desirable, easy to permit are all the drivers, and the investment's gone in over the last five, 10 years to make that happen.

David Young: And just to go back to two of these original stats here, 54% of, did you say, power that's come online-

David Zwillinger: New capacity that's come online this year is solar. 79% are Renewables.

David Young: Are those statistics, when you mention them, somewhat surprising to people that-

David Zwillinger: It's not surprising to me 'cause I live this every day.

David Young: Yeah.

David Zwillinger: But I think if people look at the grid, they look at a lot of things, and solar's still a low percentage of the overall production.

But that's because we've got a lot of legacy coal, a lot of legacy nuclear, a lot of legacy hydro, all things that are not coming online in any type of way to power demand for AI or power demand over the next five years. We can debate whether nuclear is gonna come online in 10 or 20 years.

 But I think one nuclear plant of scale has come on in the last 30 years.

David Young: Interesting. One of the things you alluded to here is storage. Large-scale energy projects, storage projects specifically, were uncommon a few years ago and are becoming increasingly prevalent. Is this due to a change in technology or a change in demand or a change in realization of if we're producing more solar and the demand isn't there, we've got to figure out a way to store it?

David Zwillinger: There are two big drivers, and I'm gonna hit both of them.

David Young: Yeah.

David Zwillinger: Cost and demand. But before we do that, let me just give you an anecdote. We've been building power plants in DESRI since 2011, and I've been doing renewable since 2005. We added our first battery plant we built starting in 2021. This year, we will build seven battery plants.

So we are seeing the growth. So what are the drivers? First, it's cost. The costs have declined 66% over the last five years. The costs have been driving down mostly because of the investments in electric cars and the growth globally in the demand for capacity. So batteries have gone cheaper.

Lithium ion's gone cheaper. So as the prices come down, we've made this a lot more economic. So the first driver of all of this demand has been it's a much cheaper product to the customer. The second is if you think about trying to get a data center online or new manufacturing, yes, they need megawatt hours, but they really need capacity.

And capacity is there when you least need it. There's a storm, it's really hot out. And a battery is able to move when you need the megawatt hours. So in some ways, the growth of solar, the growth of renewables has balanced nicely 'cause storage will move that to when you need it. And so we are seeing this, and the market is needing the need for capacity as you're trying to add a lot of supply to the market.

David Young: You mentioned costs here. Do you think are costs coming down across the board through all forms of energy, or is it solar costs are dropping the most?

David Zwillinger: Okay. Over the last 30 years, all costs, wind, solar, storage. But a lot of those investments in wind happened 15 years ago, so the general advancements have declined.

Solar plateaued in probably 2020, and costs have gone up a little bit since then. But the costs are dramatically down over the last 30 years. You're really seeing a massive decline in cost in battery, in particular, in the last five or six years. A lot of that's coinciding with the increase in EV globally.

Don't just look at the US market. Look what's happening in China. Look what's happening in Europe.

David Young: So not directly related, but a point that may be of interest to some of our listeners, renewable energy projects are eligible for tax credits, which can then be sold to third parties. Tell us a little bit more about how these tax credits work and also why would CEOs and CFOs be interested in understanding and using them?

David Zwillinger: Up until 2022, the only real player that can monetize tax credits were these big banks that did these complicated structures. In 2022, when the Inflation Reduction Act happened, they became much simpler, whereby profitable corporations, often these big Fortune 100 companies, can buy tax credits produced by solar, wind, or battery projects.

So today, if you're a CFO or CEO of a Fortune 100 company that are paying a large tax bill, we can sell you a tax credit that year, and all you're doing is buying that credit to offset your income that year. And these credits are selling at low 90s, high 80s of price. So what that means is if you had a $100 liability, you can buy a tax credit from us for $91 and offset $9 of credit just by purchasing this.

We are doing this. Your accounting firms are doing this. The law firms are advising on this, and it's actually a pretty simple process. You don't take operational risk. You don't need to know if it's a solar, if it's a sunny resource. You don't know if it's a wind resource. We give you an estimate of the amount of credits you're getting.

We certify that. A third-party accounting firm will certify that, and then you get the credits to offset against your tax liability.

David Young: Let's talk a little bit about the future and what lies ahead and where there are consequential bottlenecks. If we look at the continued development of renewable energy and solar, where do you think there are potential constraints down the road?

Is it access to capital? Is it the ability or inability to turn capital into operating projects? And as you look at that kind of value chain, where else are there bottlenecks that are disturbing and getting in the way of renewable energy and solar growing further?

David Zwillinger: The capital markets are quite strong. I've been doing this for a long time. It ebbs and flows, but today's markets are great. There's a lot of bank interest. There's a lot of institutional capital interest. There's a lot of private interest. So if you have a good project, there's capital out there for you on pretty attractive terms. The challenge is, in all development, it takes time.

You've got to build landowner and community relations. You see some of the challenge data centers are having because development is challenging. Most of our projects we've been working on for five to 10 years. The biggest constraint we usually find is our interconnect, and to get studied to get onto the grid is often between a three- and a seven-year process.

So we get land, we get a permit. Our biggest constraint is when the grid says, "We can accept your power." And so when we think about developing new projects and projects we're building this year, we've been working on them for five-plus years. So the constraint is putting all the development together and building long-term infrastructure.

Now, on the flip side, this is infrastructure that's gonna last 40, 50, 60 years. You gotta do a lot of things right. You gotta build these prudently. But it's not a capital challenge, and it's not a construction challenge either. You can build these assets in 12 to 24 months. It is the things you need to do to develop the site to get it ready.

David Young: Can you share a little bit more? You mentioned this idea of data centers and some of the pushback against them for a variety of reasons. You've touched on a point, and it's covered extensively now in the news. And I'm super curious about this part in terms of what DESRI and yourself have done around kind of stakeholder management and community development, because when you drive across the country and you see these solar farms, they're not small and they're not potentially the most beautiful things in the world. Has there been pushback? And if there has been, how have you guys navigated some of those challenges?

David Zwillinger: So let, I'll start and give my experience, which is more renewables, but it's gonna apply to data centers as well.

David Young: Yeah.

David Zwillinger: First, you're a member of the community. You're gonna be there for a long period of time, and during construction you are gonna disrupt the community in some way, whether that's roads, whether that's construction, or whether there's gonna be a lot of temporary workers.

But there's a lot of things you are benefiting the community: property tax, lack of noise, infrastructure investment. And so you've got to build community relations, community support. We're often in a community years before we're actually building a site. We're going to town hall meetings. We're meeting with landowners.

We're doing participation agreements and community agreements so that people understand we're making an investment in this community. And I think some of the things that have gone wrong over the last couple of months or quarters have been an inability to understand you're affecting people's community, and let me show you the positives we're investing, not globally, not against China, those things are all true, but as it relates to your specific community.

I'm gonna lower your property tax. I'm gonna bring investment into your community and why that's good for you and the landowners.

David Young: Interesting. One of the biggest criticisms that comes up with regards to solar is that it is somewhat intermittent and potentially can't provide energy, let's say, during the night or on a cloudy day.

How should business leaders think about the relationship among solar and wind, battery storage, transmission, natural gas, and other sources needed to maintain reliability?

David Zwillinger: I always find this question challenging on both sides of the political side. On the one hand, solar is intermittent, and solar is not coming at 1:00 in the morning.

That is true. On the other hand, the grid is the whole mechanism through which different things come together. A peaker plant does not operate 24/7. It's super expensive. And so the goal of the grid is to put these different parts together.

People sometimes used to talk about solar being 100% on the grid. That doesn't make any sense. Now, solar paired with storage, paired with gas, paired with a peaker, paired with some base load, that is the way to optimize the overall cost of the grid. Your first 10% or 20% of penetration on a renewable source is pretty easy. But when you go from 20% to 50%, you gotta start to do things to manage that peak that often happens.

In California, use a term called the duck curve, because at 1:00 in the afternoon, the amount of resource was super high and therefore the price dropped. So you saw a duck-like look. That has been changed materially in the last couple years as you've added batteries. So you take the excess supply happening at 1:00 in the afternoon and move it to 9:00, 10:00, and you've balanced out the supply.

So batteries are a really nice balance but adding a low-cost resource that's pretty consistent is a valuable part of the overall grid.

David Young: And should people view energy supply is, it should be somewhat holistic in terms of saying, "Hey, we're not gonna rely 24/7 on solar. Actually, we're gonna have a mix of different energy sources?"

David Zwillinger: You should certainly have a supply because any one of the sources could have a problem.

David Young: Yeah.

David Zwillinger: You could have a drought in hydro. You can have a gas turbine go down. You can have a nuclear plant that has a nuclear reactor issue. And not to mention, you are never gonna build a small nuclear reactor, we haven't historically, because they are super expensive and they're base load.

So the whole goal of a grid is you need your lights on one time. Someone else is putting their electricity plant lower, and you're balancing an overall grid, and you manage different resources to do that in the most cost-effective way.

David Young: Is there a good working relationship between those stakeholders, whether it's solar, wind, nuclear, or does it need to be better to have this holistic kind of interdisciplinary relationship across all sources of energy?

David Zwillinger: I'll start with a positive. Today, there is no utility or grid operator that doesn't see the benefits and the challenges of adding renewable resource. A decade ago, you would go and there would be some states which says, "Ah, I don't like renewables."

David Young: Yeah.

David Zwillinger: And then you would show them the cost and the consistency and how it adds to their grid, and that does not exist today at all. Now, would you say that is the gas operator and the solar operator best friends?

Probably not, 'cause there's a form of competition. But as a grid operation, what is good for you, the customer? Actually, the answer is both. One of them is good in some dimensions and has some negatives, and the others have the same. And I'm not even getting into any of the environmental benefits, low cost, but if you were to use gas as an example, gas is pretty cheap today.

But there was a period in my career where million British thermal units (MMBTUs) were much higher and so gas became a very expensive option. And so having a nice balance, solar and wind have no feedstock cost, huge advantage, but it's not the only part of a solution.

David Young: Interesting. In closing this, let's talk about this. We alluded to this earlier, but large companies are increasingly becoming active participants in the power market to what we talked about earlier through these power purchase agreements and other long-term commitments.

We spoke a little bit about CEOs and CFOs navigating this area, but from your perspective, what should senior executives understand before entering into those agreements?

David Zwillinger: Okay. First off, there are three types of buyers of our power: utilities, cooperatives, municipalities, and then large companies that wanna go direct.

Most companies should just get their power from their local utility or cooperative, but there are large players, especially the hyperscalers, that will interact directly with the producer like myself. What do they want? Reliability. They said they're gonna get power. Often, they are contracting with us 24, 36, 48 months before they're actually gonna get it.

So who do they contract with that's gonna deliver? Two, are they getting what they need? I need capacity. Battery is more valuable than solar. Third, how do they think about their own use of this energy source? Is it a hedge for prices that could rise? Is it because they're trying to fit some specific goals that they're trying to accomplish in that grid?

Is speed the most important and not price? And you should use those different things when they're trying to buy power. All of that being said, big buyers today are managing their fleet because it is critical to be able to energize. Today, if you were to go and say, "I wanna put a data center up in Nebraska," your utility's gonna say, "Great, we need someone to supply that power."

Who can do it fast? Who can do it in scale? And who can do it cheap? Are the three drivers. And so knowing the end customer, whether you go directly to me or whether you go directly to the utility, knowing who can provide it and that being reliable is important.

David Young: You've been in the industry a while. We started off talking about relatively flat electricity consumption being there for years before today. In the last five years or so, have the conversations you've been having changed dramatically and the dynamics changed?

David Zwillinger: If you go back 2005, 2010, the drivers of renewables were climate goals, state goals, something called renewable portfolio standards. Maybe if you go back to the early part of this decade or the late 2018-'19, ESG was a big driver. That today is almost all gone. We never hear, "We have an ESG goal." What they say is, "Renewables are cheap, they're fast, they're dispatchable in a pretty easy way," meaning I can put it in one site, I can manage that.

It will be intermittent, but I can manage that intermittency within my overall load. But the ESG side, the clean, the CO2 side, That's a positive, but it is not a driving force the way it was five, 10 years ago.

David Young: There's a huge amount of innovation going on, it's hard to have a conversation these days without talking about AI and emerging tech. They require a huge amount of energy. It's hard to turn on the news without seeing this.

Final question for you today. As we look forward, do you see the trends continuing?

David Zwillinger: I always joke to the team, we're selling a commodity, and the number-one thing you wanna do with a commodity is sell low cost.

And so if we can continue to be low cost, we are part of the solution because the end customer cares a lot about reliability and price and speed. And so when you think about the different sources of new generation, a lot of those other things, they are not gonna come on fast and they're not gonna be cheap.

We're not building new coal in the US today. Nuclear plants of scale are many years away.

David Young: Yeah.

David Zwillinger: Finding a new hydro facility is incredibly challenging and environmentally sensitive. So when you think about what's remaining, it's gas and we're gonna see more gas for sure. It's solar. It's a little bit of wind, but I joke putting a 600-foot structure in someone's backyard is not that easy.

And then it's storage to manage the existing resource more efficiently. So to me, those are the alternatives of adding new power. We're not going backwards. AI's here, electrification's here, domestic manufacturing is here. All of those are driving the demand for power. And so what are the things that can supply 'em?

Things that can come on soon, that are cheap, and you can put in scale.

David Young: I know I said that was my final question, but now you keep sparking ideas.

David Zwillinger: Go ahead.

David Young: Are there countries out there that you guys look at and have been inspirational in terms of what we should have here in the States?

David Zwillinger: I sometimes hear this argument on the deep right side or on the deep left side, and both of them have some main flaws. So in China, they are adding nuclear at a pretty cost-effective way in massive scale. They're adding more in a month of solar than we'll do in a whole year. So China's got a tremendous amount of scale and they move quickly. But China is not the United States.

David Young: Yeah.

David Zwillinger: They don't have eminent domain. They don't have local states' rights. And so the principles you use to apply to put a 1,000-megawatt nuclear facility is totally different to the US. On the flip side, Europe's got a lot of other challenges. They don't have the greatest resource.

They don't have a lot of land. So there are a lot of challenges in both of those to make comparable to US. One of the benefits we are getting is so much capacity has been added, so much improvement in efficiency, it's driving down the costs. Lithium ion, much cheaper. Solar, much cheaper.

Wind turbines, much cheaper. Because there's so much being built that you get a lot faster and the efficiency's improved. So all of those are benefiting, but I'm always reluctant to analogize to those markets 'cause they're so different than building things in the US.

David Young: David, thank you. A really insightful and reflective conversation. Really appreciate you, David, CEO of DESRI. Great to chat today.

David Zwillinger: Thank you for having me.